We expect Transocean Ltd. RIG to beat expectations when it reports third-quarter 2015 results on Nov 4, after the closing bell. Last quarter, the company delivered a positive earnings surprise of 122.00%. On top of that, the company outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average positive surprise of 58.91%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Transocean is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.52%. This is a meaningful indicator of a likely positive earnings surprise for shares.
Zacks Rank: Transocean carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident about an earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
As is the case with other offshore drillers, Transocean’s revenues/earnings have borne the brunt of the freefall in realized commodity prices for over 12 months. As oil lingers in the bearish territory, the top energy companies have cut spending (particularly on the costly drilling projects) to make up for lower profit margins. This, in turn, has meant less work for the beleaguered drillers in the third quarter as offshore exploration for new oil and gas projects almost came to a standstill.
However, Transocean came up with certain strategic initiatives to overcome the industry-wide slump and outperform earnings estimates yet again in the third quarter. With an aggressive cost reduction program, Transocean is looking to shore up its operational performance even in this weak oil and gas pricing environment. As part of this strategy, the company has embarked on a policy to optimize maintenance expenses.
Other Stocks to Consider
Transocean is not the only company looking up this earnings season. We see likely earnings beats coming from these energy firms as well:
Natural Gas Services Group Inc. NGS with an Earnings ESP of +11.11% and a Zacks Rank #1 (Strong Buy). The company is anticipated to release earnings results on Nov 5.
Swift Energy Co. SFY has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy). The company is likely to release earnings results on Nov 5.
Seadrill Partners LLC SDLP has an Earnings ESP of +12.00% and a Zacks Rank #1. The partnership is expected to release earnings results on Nov 25.
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